HC quashes IT penalties on TASMAC

In a significant legal development, the Madras High Court (MHC) has nullified the penalties and taxes imposed by the Income Tax (IT) department on the Tamil Nadu State Marketing Corporation (TASMAC). The IT department had alleged TASMAC’s failure to collect tax collected at source (TCS) from bar contractors for the sale of empty liquor bottles. The case, heard by Justice C Saravanan, centered around TASMAC’s plea to annul the IT department’s order for non-collection of TCS from bar licensees, who were treating empty bottles as scrap between the financial years 2016-2017 and 2023-2024 under the IT Act of 1961. Representing TASMAC, R. Vijayaraghavan argued that the IT department’s classification of empty liquor bottles as scrap arising from the mechanical working of materials was erroneous. He emphasized that TASMAC, as a retailer selling liquor, did not own the empty bottles left by consumers in bars, thereby excluding them from the definition of “scrap.” The IT department, represented by Senior Standing Counsel B. Ramaswamy, countered that TASMAC’s own tenders referred to the disposal of empty bottles as “Scrap/Disposables,” placing the responsibility of collecting TCS on TASMAC for the entire license. Justice Saravanan, in his judgment, rejected the IT department’s interpretation, stating that the mere opening, breaking, or uncorking of a liquor bottle did not constitute the generation of ‘scrap.’ He deemed the IT department’s order as misplaced and unwarranted, invoking Section 206 CCA of the IT Act, 1961. The judgment further upheld TASMAC’s position that it was not liable to furnish the PAN numbers of bar owners, as demanded by the IT department. The MHC’s decision brings relief to TASMAC, emphasizing that the corporation should not be penalized for the alleged failure to collect tax on empty liquor bottles.